Under §203(m) of the FLSA, employers may only claim a tip credit toward minimum wage if all tips received by a tipped employee are retained by the employee. In Steele, the Fifth Circuit was asked to decide whether a restaurant employer violates this section when it deducts certain fees from tips paid by credit card. The defendant, the restaurant chain Perry’s, retained a flat 3.25% of all credit card tips to offset both credit card issuer fees and other costs which it contends it incurred in collecting and distributing tips (including administrative expenses related to converting the tips to cash for payment on a daily basis, as the employees had specifically requested).

Both parties relied on the only previous circuit decision to address this issue, Myers v. Copper Cellar Corp., 192 F.3d 546 (6th Cir. 1999). In Myers, the Sixth Circuit held that employers had a legal right to deduct the processing costs imposed by the credit card issuer. Perry’s argued that, under the reasoning of Myers, it also had the right to offset its own cash-delivery expenses. The Fifth Circuit disagreed and stated that Perry’s made a “business decision” by responding to employees’ demand to be tipped out in cash each night, instead of folding their tips into their bi-weekly pay checks. These costs were found to be “indirect and discretionary” – as opposed to “direct and unavoidable” costs such as the credit card company fees. Therefore, Perry’s system did not qualify for a tip offset under 29 U.S.C §203(m). However, the Court excused Perry’s from paying liquidated damages and applied the shorter two-year statute of limitations. It found that Perry’s impermissible deduction was effectively less than 1% of the amount tipped, and a Department of Labor investigator at least tacitly advised Perry’s that its offset conformed with the FLSA. Thus, the violation was held not to be willful, and the good faith defense applied. Employers should nonetheless be aware that, now that this point of law has been settled by the Fifth Circuit, future courts may find that employers should be “on notice” of this provision moving forward.

The Montano and Steele decisions, both authored by Judge Higginson, reflect the growing interest that both courts and the plaintiffs’ bars have taken with respect to tipping practices and the FLSA. Employers would do well to ensure that their tip system scrupulously complies with the FLSA. If you have any questions regarding tip offset practices or wage and hour compliance in general, please contact the authors of this post or your Proskauer attorney.

]]>https://classactions.proskauer.com/2016/06/30/fifth-circuit-addresses-flsa-tip-credits-once-again/feed/0Fifth Circuit Tips Its Hand as to Analysis of FLSA’s Tip Credithttps://classactions.proskauer.com/2015/09/09/fifth-circuit-tips-its-hand-as-to-analysis-of-flsas-tip-credit/
https://classactions.proskauer.com/2015/09/09/fifth-circuit-tips-its-hand-as-to-analysis-of-flsas-tip-credit/#respondWed, 09 Sep 2015 22:06:26 +0000https://classactions.proskauer.com/?p=499Continue Reading]]>Restaurants throughout the Fifth Circuit, and even beyond, should review the recent decision of Montano v.Montrose Restaurant, which discusses the often tricky and always fact-intensive question of whether a restaurant employee is properly included in a tip pool.

In Montano, the issue presented to the Fifth Circuit was whether a restaurant’s “coffeeman” was properly included in a tip pool with waiters, bartenders and busboys. For restaurant employers, the inquiry is important because the federal Fair Labor Standards Act allows employers to claim a tip credit towards satisfying the minimum wage requirement for any employees in a properly constituted tip pool. However, a tip pool is limited to “employees who customarily and regularly receive tips.” 29 U.S.C. § 203(m). Thus, improperly including even a single employee may invalidate the entire tip pool.

The Montano plaintiff, a waiter, alleged that the restaurant had wrongly included the coffeeman in the tip pool. The parties submitted conflicting evidence regarding the coffeeman’s duties. In general, the evidence showed that he worked behind the scenes making coffee and occasionally would bring bread and food to the dining room. The Fifth Circuit began its analysis by noting that it “is not easy to determine” whether the coffeeman customarily and regularly received tips, stating that his inclusion in the tip pool was insufficient to satisfy the FLSA’s requirement that he “customarily and regularly” received tips. Consequently, the court re-fashioned the question as follows: whether the customer – that is, the person who leaves the tip – would have intended the coffeeman to receive a portion of the tip.

In its analysis, the Fifth Circuit discussed several factors that may be relevant to answering the re-fashioned question, including, but not limited to, whether the employee had “more than a de minimis interaction with the customers who leave the undesignated tips” and whether the employee “is engaging in customer service functions.” (As Judge Dennis noted in his concurring opinion, these are not the only potentially relevant considerations, as the analysis is individualized by the facts at issue including each employee’s particular job duties). The court rejected any attempt to rely on mere job title or “front of house”/”back of house” designation, because “[l]abels are easily molded to fit a party’s goals and cannot be determinative of whether an employee customarily and regularly receives tips.” Moreover, the coffeeman’s job duties changed in June 2011 – raising the possibility that he was properly included in the tip pool for a portion of the relevant time period. In short, the court found that the tip analysis is a “fact-intensive inquiry that requires a case-by-case analysis of the employee’s duties and activities,” and that the district court erred in resolving that conflicting evidence on summary judgment.

If you have any questions regarding tip pool practices or wage and hour compliance in general, please contact the authors of this post or your Proskauer attorney.

]]>https://classactions.proskauer.com/2015/09/09/fifth-circuit-tips-its-hand-as-to-analysis-of-flsas-tip-credit/feed/0Fifth Circuit Refuses Application of Bright-Line Test in FLSA Seaman Exemption Disputehttps://classactions.proskauer.com/2014/11/20/fifth-circuit-refuses-application-of-bright-line-test-in-flsa-seaman-exemption-dispute-2/
https://classactions.proskauer.com/2014/11/20/fifth-circuit-refuses-application-of-bright-line-test-in-flsa-seaman-exemption-dispute-2/#respondThu, 20 Nov 2014 17:35:22 +0000http://classactions.proskauer.com/?p=464Continue Reading]]>On November 13, 2014, the Fifth Circuit addressed the uncertainty stemming from its decision in Owens v. SeaRiver Maritime, Inc., 272 F.3d 698 (5th Cir. 2001), wherein the Court found that a plaintiff’s unloading and loading of vessels was considered“nonseaman” work subject to the Fair Labor Standards Act’s (“FLSA”) overtime requirements. Subsequent to that decision, plaintiffs have advocated for a broad application of Owens’s rule, and district courts struggled with Owens’s application to what are often fact-driven cases.

The Fifth Circuit provided necessary clarity in Coffin v. Blessey Marine Services, Inc., No. 13-20144, 2014 WL 5904734 (5th Cir. Nov. 13, 2014), when it reversed the district court on an interlocutory appeal and held that vessel-based crewmembers tasked with loading and unloading vessels are seamen under the FLSA rendering them exempt from the FLSA’s overtime requirements under 29 U.S.C. § 213(b)(6). In so ruling, the Fifth Circuit limited its prior holding in Owens, by finding that the unloading and loading of vessels is not strictly “nonseaman” work, and that each individual and case must be analyzed under a facts-and-circumstances test. Significantly, in dicta, the Court intimated that the Department of Labor’s “twenty percent rule,” which states that an employee loses his seaman status when “nonseaman” work occupies over twenty percent of his time, is also not a bright-line test.

Plaintiffs are tankermen who lived and worked aboard Defendant’s vessels. Though the parties and the court agreed that most of Plaintiffs’ job duties were “seaman” work exempt from the FLSA’s overtime requirements, Plaintiffs filed suit alleging that their job duties related to the loading and unloading of vessels constituted “nonseaman” work for which overtime pay was owed. Plaintiffs and the district court relied on the Fifth Circuit’s prior holding in Owens, and the district court denied Defendant’s motion for summary judgment. The district court and the Fifth Circuit granted Defendant’s interlocutory appeal under 29 U.S.C. § 1292(b).

Following oral argument, the Fifth Circuit issued its decision, which disagreed with Plaintiffs’ and the district court’s interpretation and application of Owens. Importantly, the Fifth Circuit distinguished Owens and emphasized that the analysis under the FLSA’s seaman exemption is a fact-based and flexible inquiry not subject to bright-line, categorical rules. The Court reasoned that the analysis required the consideration of the character of the work performed and the context in which it is performed and not the consideration of where the work is performed or how it is labelled. Unlike in Owens where the plaintiff was a non-crewmember who was not tied to a vessel and who only sought overtime for land-based loading and unloading, the Plaintiffs in this case lived on Defendant’s towboats, and their loading and unloading duties undisputedly affected the seaworthiness of the vessels and were integrated fully with their other seaman duties. Therefore, considering the character and context of the work performed, the Court concluded that the Plaintiffs’ unloading and loading duties were seaman work, thus exempting Plaintiffs from the FLSA’s overtime requirements. For these reasons, the Court vacated the lower court’s ruling and remanded the matter to enter judgment in favor of Defendant.